Passive investors are free loading on those who do the research to make prices efficient. Active investors protect passive investors from the mispricing that brings risk. Glad to be of service!
However, excessive flows into passive funds raises concerns: If the market is dominated by passive investors who do no investment research, how can the market be efficient in its pricing? Prices would really become a “random walk down Wall Street.”
One hopes that there are enough active fundamental investors to bring prices in line with information. While too many passive investors (and too few value investors) are a danger, there is a corrective mechanism: If large flows into passive indexes move prices away from fundamentals, there is an incentive for fundamental investors to trade to bring price back to value. Very glad to be of service!